Unprofitable companies can burn through cash quickly, leaving investors exposed if they fail to turn things around. Without a clear path to profitability, these businesses risk running out of capital or relying on dilutive fundraising.
A lack of profits can lead to trouble, but StockStory helps you identify the businesses that stand a chance of making it through. Keeping that in mind, here are three unprofitable companiesto steer clear of and a few better alternatives.
Estée Lauder (EL)
Trailing 12-Month GAAP Operating Margin: -4.2%
Named after its founder, who was an entrepreneurial woman from New York with a passion for skincare, Estée Lauder (NYSE:EL) is a one-stop beauty shop with products in skincare, fragrance, makeup, sun protection, and men’s grooming.
Why Do We Think EL Will Underperform?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Inability to adjust its cost structure while its revenue declined over the last year led to a 12 percentage point drop in the company’s operating margin
- Earnings per share decreased by more than its revenue over the last three years, showing each sale was less profitable
At $61 per share, Estée Lauder trades at 28x forward P/E. Check out our free in-depth research report to learn more about why EL doesn’t pass our bar.
Xponential Fitness (XPOF)
Trailing 12-Month GAAP Operating Margin: -16.1%
Owner of CycleBar, Rumble, and Club Pilates, Xponential Fitness (NYSE:XPOF) is a boutique fitness brand offering diverse and specialized exercise experiences.
Why Are We Cautious About XPOF?
- Muted 9.3% annual revenue growth over the last two years shows its demand lagged behind its consumer discretionary peers
- Subpar operating margin of 0.1% constrains its ability to invest in process improvements or effectively respond to new competitive threats
- Negative returns on capital show management lost money while trying to expand the business
Xponential Fitness’s stock price of $8.08 implies a valuation ratio of 7.2x forward P/E. If you’re considering XPOF for your portfolio, see our FREE research report to learn more.
Malibu Boats (MBUU)
Trailing 12-Month GAAP Operating Margin: -1.2%
Founded in California in 1982, Malibu Boats (NASDAQ:MBUU) is a manufacturer of high-performance sports boats and luxury watercrafts.
Why Do We Avoid MBUU?
- Demand for its offerings was relatively low as its number of boats sold has underwhelmed
- Sales over the last five years were less profitable as its earnings per share fell by 28.1% annually while its revenue was flat
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Malibu Boats is trading at $30.81 per share, or 9.8x forward P/E. Dive into our free research report to see why there are better opportunities than MBUU.
Stocks We Like More
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